Want to become a landlord? Get the facts before you leap

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Published Date 2/22/2019

How do you think of a real estate investor? Does the term conjure up visions of a rich guy playing tennis while his collection of rental properties bring in positive cash flow?

Mashvisor’s Eman Hamed wants you to know that you don’t need to buy an investment property to start a real estate investing career. In her recent article, Hamed points out how you can begin making money by renting out your own home while opting for another place to stay in the meantime. She also points out, however, that being a landlord is not for everyone. You can just as easily lose your shirt as make money at it.

Before you look for another place to live, study the local market. What is the demand for rentals in your location? Are there already a lot of investors? If your goal of renting out your property is to make money, and the demand is low for real estate investing in your area, you’ll have a tough time finding tenants. Even if you do find someone to rent out your place, will the rate of return be as high as you want it to be? There are always factors that can alter this — such as new infrastructure coming to the area, a neighborhood that is in the process of being gentrified, or a college that has run out of student housing. But if you don’t do your homework, you might be paying out the negative balance each month on your investment instead of playing tennis.

How rentable is your house? Just because you found it comfortable as a residence doesn’t mean it’s a great set up for a renter. “To determine the answer, conduct a real estate market analysis to have a look at rental properties in your area and find out what features make an income property attractive and appealing to tenants,” says Hamed. Not a bad idea to have a local real estate rental expert take a look to see if a few repairs need to be done in order for it to pass as a rental property.

The legal ramifications of becoming a landlord are important ones to study before jumping into this. Does your neighborhood/area/homeowner’s association preclude your property from being non-owner occupied? Are there tenancy agreements that must be drawn up, inspections that need to take place, or rent collection rules? It’s best to become familiar with the Residential Tenancy Act so that you are acting in a legally compliant manner. Your CPA can research all the relevant tax codes related to investment properties for your area. It’s also important to know about the federal, state, and local housing laws in your market, as well as your rights and obligations as a real estate investor.

Speaking of turning your residence into a non-owner occupied property, your lender might have something to say about it. Consult with a trusted mortgage loan officer particularly if it is within two years of purchasing the property as owner-occupied.

“Another variable to consider when turning your home into a rental is your next primary residence.” says writer Patrick Chism. “After all, you’ll have to live somewhere when you move.” He advises you to contact a home loan expert to study your options for qualifying for two properties at once if you don’t plan to live in a rental or with another family member.

Then there are the costs associated with being a landlord — property management, advertising, maintenance, capital gains tax, and insurance. A real estate market analysis will help with this, permitting you to see what other investors in the area are paying in this regard, including what is feasible to ask for in rent. There are sources, including MogulMind, SparkRental, and Investopedia.

It’s best to face the idea that managing an investment property (including renting out your own home on a permanent or temporary basis) requires time, effort, organization, and attention to details. Hamed advises, “Before turning your house into an income property and becoming a landlord, ask yourself this: Am I ready and capable of managing a rental property? While some property investors are tempted to manage their own investment properties, it’s best to hire a professional property management.” This person/company can handle the details you may not want to mess with, such as the security deposit, late penalties, repairs (who is responsible for what?), maintenance responsibilities (like lawn care), rules of behavior (noise levels, neighborly conduct, and smoking), pet policies, any association rules the tenant must follow and even eviction terms (such as damaging the property or not paying the rent).

Now that you’ve gotten a taste of what it might be like to be a landlord, perhaps you’ll think twice about it. In the current market, especially where housing purchases are unaffordable for the average buyer, investment rental properties are a godsend. But it’s best to make sure that godsend benefits you as much as it does your would-be tenants.

Source: Mashvisor, Quicken, TBWS

All information furnished has been forwarded to you and is provided by thetbwsgroup only for informational purposes. Forecasting shall be considered as events which may be expected but not guaranteed. Neither the forwarding party and/or company nor thetbwsgroup assume any responsibility to any person who relies on information or forecasting contained in this report and disclaims all liability in respect to decisions or actions, or lack thereof based on any or all of the contents of this report.

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